The Integrated Global Oil Market
According to the United States Energy Information Administration (EIA), in 2007 the United States imported on average over 13 million barrels per day.[i] Of those 13 million barrels, only about 2.2 million barrels come from nations in the Persian Gulf, a mere 16% of total imports, or, less than 10% of total oil demand for the United States. Would a disruption of oil traffic in the Strait even affect the United States?
The answer to the above question is an emphatic YES. Years ago, it used to matter which countries produced oil specifically for which other countries. Now, the global oil market is fully integrated, "essentially a global auction."[ii] According to the EIA, "The fact the oil markets are physically inter-connected, with supply for a region coming from another region, means that of necessity even local gasoline prices feel the impact of prices abroad."[iii] It is because of this integration that any major supply disruption would ripple through the entire global oil market, regardless of which countries import the specific oil that has been disrupted. This is why disruption in the Strait of Hormuz is a disruption to the United States oil supply.
The following sections highlight key considerations for understanding the global oil trade with respect to the Strait of Hormuz:
- Global Demand & Supply of Oil
- The Price of a Barrel of Oil
- The Future of Oil and the Strait of Hormuz
Global Demand & Supply of Oil
The flow of oil throughout the world is driven by supply and demand. While oil is produced in much of the world, the Middle East dominates in terms of both production and proven reserves.